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Why the retail numbers may be a really bad sign for the US economy

Lawrence Lewitinn

Talking Numbers•May 13, 2014

Are today’s retail numbers telling us something bad about the economy?

According to the U.S. Commerce Department, April retail sales were up by only 0.1 percent compared with the previous month. A survey of economists by the Wall Street Journal shows 0.4 percent was the expected number. Take out auto-related sales, and retail was just about flat in April.

That may not sound like the end of the world but it's not that great, either.

Sure, March's number was revised upward by 0.3 percent, to 1.5 percent on a month-to-month basis. So, basically, the differences were a wash; we're just about where we would have been if March's number weren't revised upward and April's numbers didn't disappoint. Plus, April's sales were 4 percent higher than the same month last year.

However, according to Gina Sanchez, founder of Chantico Global, retail figures need to be better if U.S. GDP growth for 2014 to reach its expected growth levels of around 2.6 percent to 3 percent.

"You really have to see a significant growth in consumption," said Sanchez, a CNBC contributor. "But, if you look at what is happening to the retailers, that just isn't bearing out yet."

Although Sanchez sees positive signs for the economy in employment, manufacturing, and services numbers, she says retail data have been terrible.

"We've seen big retailers even like Wal-Mart and Amazon missing numbers," Sanchez said. "We've seen store closures [and] increasing pressure on discounting at the store level. That is not good. That really presents a shadow on… what we can expect from the GDP number."

Richard Ross, global technical strategist at Auerbach Grayson, believes the technicals in have been showing negativity since the start of the holiday shopping season last year. Ross, a "Talking Numbers" contributor, uses SPDR S&P Retail ETF (XRT) as a proxy for the consumer. The XRT contains 104 retail stocks including Wal-Mart, Kroger's, Target and Amazon.

"One of the reasons we look at charts is that the technicals are supposed to give you a little tell," Ross said. "They're supposed to lead the fundamentals. That's what we've seen here in the chart of the XRT… What's remarkable is that retail stocks peaked on November 29 of last year, which just happens to be Black Friday…. That is the day the retailers are supposed to go from the red to the black and, in actuality, they did just the opposite."

Ross noted that among S&P 500’s 10 main groupings, the consumer discretionary sector is the only one that's down for the year. The segment is off by 3.8 percent. It "remains an Achilles' heel for this market considering this is a consumer-driven economy," Ross said. "That's not a great thing."

Looking at a three-year chart of the XRT, Ross sees a head and shoulders pattern. That is viewed as a bearish sign by technicians. He sees the primary trend heading lower.

"I want to be selling rallies," said Ross of the XRT. "If I'm selling the U.S. consumer, I would think you want to be selling a lot of other things. But so far, that call has not worked well at all."

To see the full discussion on retail, with Sanchez on the fundamentals and Ross on the technicals, watch the above video.